Avoid sharks circling your small business

When people are relying on a new business to provide their living expenses they can unfortunately be tempted to take on risks supported by finance to try to get results they are so desperate to achieve.

We’ve talked about how needing funds can affect your sales performance. On top of this, unfortunately it can also affect your judgement and leave you open to attacks from sharks (who are people selling high cost solutions.)

We will cover the additional downfalls that can occur from the wrong financing strategy, and revisit the solution to avoid them.

By the end, you will have a greater awareness of business sharks and also know how to repel them.

Beware of the sharks
Most people are supportive, but occasionally you will come across someone offering a supposed quick result for a significant amount of money. If you are desperate for results, you may be tempted to take on debt in the hope that it will pay off and get you the results you need. If things were that simple though everyone would be a business success.

If you are operating the part-time start up method, alongside a written budget plan for the business with all your living expenses covered from your employment, then you will be in a much better place to fight off these attacks.

Of course there are some people who say you should burn your boats and go all out 100% when you launch a business rather than start it part-time, but remember there is a high failure rate for new businesses.

Whatever business you start, it will take time to build up the clients and contacts from your new sales job. Taking on large amounts of debt is unlikely to speed up the results, and just result in even more pressure being put upon yourself.

If you are running a business with a cash budget however, then you would just re-plan when the allocated funds have been exhausted. The danger from using finance is that you can be pulled into a debt spiral that can wipe out your business.

The deadly shark debt spiral
What happens in the shark spiral is:

1) You are desperate to get money into the business to support your living expenses (Maybe you also have start up finance as well to repay.)

2) Then you are then approached by someone offering what seems to be a quick fix. You think that this might be the key to getting the income you desperately need, so you take out more finance to get it to work – expecting the return to repay the finance later.

3) But you don’t get the results you were hoping, wrongly thinking it’s your fault, so maybe fall victim to another shark.

4) The cycle then continues until you end up maxed out, and probably still in the same situation when it comes to business results – but now with a lot of debt hanging over you.

I’ve seen people give up at this point and just go back to employment with another job, but they are then having to pay off the debts they built up for many years to come.

They may think that they’re failures in business, but this is not the case – it’s just the way they started the business that caught them out.

Their actual business idea may have been good and would have proved to be profitable, but it just needed time and funds to build it up. That’s why I recommend the part-time start up method.

Also remember if you try to spend a large amount of money on marketing you will then be competing directly against the big players, who have massive budgets and can afford to run a campaign for several months.

You can beat them however, but with different marketing plans instead. There are many areas, such as on the web, where the size of your business is not directly related to your influence and results.

Expensive marketing options to avoid when you are starting out
Some examples of expensive marketing I’ve seen, that unfortunately don’t come with guarantees are –

A £15,000 telephone directory – An advert in a telephone directory that cost £15,000 but unfortunately the business owner could not directly attribute any new clients to it. Indeed, with several countries having already dropped physical directories and moved online this shouldn’t be something that continues much longer.

A £10,000 leaflet/flyer distribution – An expensive flyer campaign was another. There are actually dual costs involved – design & print, and then distribution. Distribution is where things can come apart. Reading the contracts some don’t even claim to deliver all your leaflets that you had paid them to, maybe only sending out 85% of them! Plus, now many leaflets go straight into recycling bins when they’re received – without even being read.

A £8,000 simple website – I’ll talk in the marketing section about how important a website is, but there is no need to spend such a large amount for a one-person business unless you could prove that the additional spend would bring in more than its cost. You might find that £200 is all that you need to get a professional looking starter website.

A £6,000 training course – Independent training costs are another source of expense. You will know from udemy that a couple of hundred pounds is all that you need to spend to get a quality course that will more than repay the investment. I’ve seen people offering courses for huge amounts of money in other places though, that just can’t be justified based on the anticipated return and the qualifications of the providers.

A £2,000 ‘premium’ business club membership – Finally, premium memberships are another area where you could be tempted to spend large amounts. Whether it’s online or offline, you really need to justify the return before spending such an amount. Quality providers usually offer a limited trial so you can see how it could work for you first. You would definitely want to speak with successful business members, who are in your own field, to judge the returns before signing up.

These are examples of items that can result in large debts, and no results in time to pay those debts, but desperation might mean that you fall victim to them.

But there is always one option to help you avoid that.

Shark repellent
Simply, by operating a cash budget you are much less likely to fall victim to sharks and you always have the defence, when approached by people looking to sell you their expensive product:

“It’s not in the budget”

This allows you to take a pause & step back.

Perhaps what they are proposing could work in a different way? Or may be suited when you are at a different stage? Perhaps there is a similar option that is much more affordable? If either of these are true, then you can take action when you have the cash available to proceed.

It’s important to realise that it will take time to build your business, so don’t become disheartened if it doesn’t appear to be taking off straight away.

When it comes to sharks, beware that others may not tell anyone they have been bitten – because they falsely assume the reason it didn’t work out was because of their own failings, they may be embarrassed to mention it. But they need to realise that instead it was just the expensive shark method that didn’t work for them.

We have covered the fact that unfortunately not everyone in business has your best interests at heart, when selling their own products. But now that you know the downfalls, and what to watch out for, you can actively avoid them.

James McBrearty

James McBrearty specialises in making tax easy for the self-employed. He founded taxhelp.uk.com in 2006 and is also the author of 2 books for small business. In 2016 he launched an online business course that now has over 4,250 students in 130 countries around the world.

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I'm based in Cobham, Surrey. I specialise in helping the self-employed with their self-assessment tax returns and accounts. Whether you are just starting out, or are looking to grow your existing business, I can help. I have a range of fixed-fee packages so you know up front what the cost will be.

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Tax help for the self-employed

James McBrearty specialises in making tax easy for the self-employed. He founded taxhelp.uk.com in 2006 and is also the author of 2 books for small business. In 2016 he launched an online business course that now has over 4,250 students in 130 countries around the world. Read More…